Providing Professional Services in the Ordinary Course of Business

Introduction
On 17 December 2015, the Court of Appeal (“CA”) in HKSAR v Ip Wing-lun CACC 368/2014 rejected a certified public accountant’s appeal against his conviction for conspiracy to offer advantages to an agent, contrary to section 9(2)(a) and 12(1) of the Prevention of Bribery Ordinance (Cap.201) and sections 159A and 159C of the Crimes Ordinance (Cap.200) (“CO”). The CA rejected that the role of the appellant (D5) was limited to the normal functions that an accountant ordinarily performs.

Facts

Background
Benefun International Holdings Limited (“Benefun”) was a company listed on the main board of the Stock Exchange of Hong Kong Limited (“SEHK”). Tan Sim-chew (“Tan”) was the chairman and executive director (and thus an agent) thereof. D1 was Benefun’s financial director and company secretary.   

D5, a certified public accountant, was the sole shareholder and director of a Hong Kong company which purchased a BVI company called Super Aim Group Limited (“Super Aim”).

Tan and Super Aim entered into an agreement on 5 May 2008 (with a supplementary agreement executed on 4 June 2008) (together “Super Aim Agreements”) which included inter alia the following terms: (1) Tan would sell his 626 million shares in Benefun to Super Aim for a consideration of HK$80 million; (2) Tan would cause the appointment of persons nominated by Super Aim to Benefun’s board of directors to constitute a majority in the board; (3) Tan and Super Aim would cause the passing of a resolution for Benefun to acquire Ample Rich Enterprise Limited (“Ample Rich”) for a consideration of HK$500 million (the “Acquisition”).

It was revealed in the judgment that the president of Benefun, who was the 2^nd Defendant during trial at First Instance, through a Blackpool Stadium Limited (“Blackpool”), held the entire interests of Ample Rich. In other words, Benefun was in fact contracting to acquire assets that belonged to its own officer (i.e. D2), which constituted a connected transaction within the meaning of the Listing Rules and was subject to certain disclosure requirements.

D5’s involvement in the Super Aim Agreements and the Acquisition
Completion of the Acquisition then took place and several announcements were made by Benefun in relation to the transactions. Both the announcement and circular in respect of the Acquisition issued by Benefun were problematic in that they: (1) made no reference to the Super Aim Agreements; and (2) contained misrepresentations on the Acquisition, including that there would be no change in the composition of the board after the Acquisition (discussed below), and that the vendor (Blackpool) and its ultimate beneficiary (D2) were not connected persons within the meaning of the Listing Rules. Although D5 was not involved in drafting the announcement and the circular, the draft of the circular had been shown to D5.

Contrary to what was stated in the announcement and circular, all of the existing executive and independent non-executive directors of Benefun’s board resigned after the Acquisition, with D2 and his associates inviting various persons to join the board. A handwritten note, other documentation, and email correspondence between D5 and other defendants in respect of Benefun’s change of directors were found in D5’s office.

The Indictment
D5 was only charged and convicted for conspiring with other defendants to offer advantages to Tan unlawfully, being payment of HK$80 million for acquiring Tan’s shareholding in Benefun under the Super Aim Agreements and provision of Benefun’s promissory note to the value of HK$100 million under the Acquisition. Such advantages were provided as an inducement to or reward for Tan to bring the Acquisition to fruition.

D5’s defence and grounds for appeal
D5 raised three main defences during the trial: (1) both the Super Aim Agreements and the Acquisition were lawful; (2) D5 never knew that the Super Aim Agreements and the Acquisition were intended to be implemented; and (3) instead of being involved in the negotiation or execution of the Acquisition, D5 was only providing professional services in the ordinary course of business and had never received any commission or benefit from the Super Aim Agreements or the Acquisition. In particular, D5 was one of Blackpool’s contact persons for the Acquisition and went to Benefun’s office to conduct due diligence in May 2008. He was involved in a series of emails relating to the conditions for completion of the Acquisition, including payment of the HK$80 million to Tan pursuant to the Super Aim Agreements.   

All of D5’s defences were rejected by the trial judge.

On appeal, D5 only relied on a technical ground that the trial judge erred in failing to summarise the salient features and evidence of D5’s case properly, which led to an unbalanced and unfair summing-up.

The CA judgment
The focus of this newsletter is not on how a judge should summarize the case before a jury, suffice to say that in the current case the CA dismissed D5’s appeal against conviction and rejected that there was a failure to properly put D5’s case before the jury so as to deprive D5 of a fair trial. 

The CA further held that the trial judge’s comments were mostly fair and correct.  In respect of D5’s defence that he was only performing the professional duties which accountants are responsible for, the trial judge’s holdings (which CA agreed) were that if D5 was a conspirator, the defence that D5’s role was just limited to performing the normal functions of accountants would not be available to D5.  D5 could not be only performing his professional duties as an accountant with his aforementioned involvement in both the Super Aim Agreements and the Acquisition.

Conclusion
While the CA dismissed D5’s appeal against his conviction, it allowed the prosecution’s application for a review of sentence imposed on D5. D5’s custodial sentence ultimately increased from three years to four years.

This case alerts professionals of the risk to be caught in conspiracy, as providing professional services may not be a valid defence thereto. Professionals ought to be cautioned of any information, documents or instructions received from clients which may indicate a scheme of conspiracy. In the event that any suspicious circumstances are detected, professionals should cease to act for the client or intervene to stop the conspiracy.

Published by ONC Lawyers © 2016